Stocktake: Valuation gap widens as tech stocks advance
Market capitalisation of FANGMAN stocks equal to GDP of Germany and Italy
Amazon, one of the As in the FANGMAN group. Photograph: Emmanuel Dunand/AFP via Getty
Going long on US technology and growth stocks remains the most-crowded trade in the world, according to Bank of America’s fund manager survey. Contrarians would not be impressed, although tech stocks continue to defy the doubters and lead the recent market advance. The numbers really are eye-popping. Amazon, now worth $1.25 trillion, is more valuable than the 30 stocks that make up Germany’s Dax index, tweeted financial journalist Holger Zschäpitz last week.
Zschäpitz noted that the combined market capitalisation of the FANGMAN stocks – Facebook, Amazon, Netflix, Google, Microsoft, Apple and Nvidia – is now $6.1 trillion, equal to the combined GDP of Germany and Italy. Growth stocks have trounced their value counterparts for more than a decade now, so much so that the valuation gap between the two is at record levels, according to a recent note from AQR Capital Management founder Cliff Asness.
He rejects attempts to explain away the yawning valuation gap, saying investors “are simply paying way more than usual for the stocks they love versus the stocks they hate”.
Nevertheless, the Bank of America survey suggests fund managers don’t care – the percentage expecting value to underperform growth over the next year is now at its highest level since December 2007.